DATA INPUT
Overhead cost per machine hour $48
Fixed manufacturing overhead $30
Machine hours limit 50,000
Blender Food Processor
Direct Material 18$ 33$
Direct Labor 12$ 27$
Manufacturing overhead 48$ 96$
Cost if purchased from outside supplier 60$ 114$
Annual Demand (units) 20,000 28,000
SOLUTION
1. Blender Food Processor
Unit cost if purchased from outside supplier 60$ 114$
Incremental cost if manufactured:
Variable overhead
$48 – $30 per hour fixed 18$ –$
$96 – (2)($30 per hour fixed) –$ 36$
Unit cost savings if manufactured 12$ 18$
Machine hours equired per unit 1 2
Cost savings per machine hour if manufactured
(
Therefore each machine hour devoted to the production of Blender saves the company more than a
machine hour devoted to
Food Processor
production
Machine hours available 50,000
Machine Hours needed to manufacture 20000 Blenders 20,000
Remaining machine hours 30,000
Number of Food Processors to be produced 15,000
Conclusion:
Manufacture 20,000 blenders
Manufacture 15,000 food processors
Direct Material 18$ 33$
Direct Labor 12$ 27$